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Since 1990 the market has had an average return of 0.2% in March, with returns positive in 54% of all years. This ranks March seventh among months of the year for market performance. Although as can be seen in the accompanying chart, negative returns have been seen in March with increasing frequency in recent years.

The general trend for the market in March is to rise for the first three weeks and then fall back in the final week – the last week of March has historically been one of the weakest weeks for the market in the whole year.

Small cap v large cap

Small cap stocks tend to outperform large cap stocks at the beginning of the year, and March marks the final month of the three-month period when the FTSE 250 strongly out-performs the FTSE 100. Since 1986 in March on average the FTSE 250 has out-performed the FTSE 100 by 0.8 percentage points.

Sectors

The sectors that tend to be strong in March are: Chemicals, Industrial Engineering, Industrial Transportation, Oil Equipment, Services & Distribution, and Support Services. The Chemicals and Oil Equipment, Services & Distribution sectors have seen positive returns every March for the past 11 years. While the weak sectors in March have been: Banks, Fixed Line Telecommunications, Gas, Water & Multiutilities, Nonlife Insurance, and Pharmaceuticals & Biotechnology. The Banks sector has the worst record: it has seen positive returns in only three of the past 11 years.

Shares

For stocks, the FTSE 350 shares that have performed the best over the last ten years in March are: IWG [IWG], Clarkson [CKN], Senior [SNR], Intertek Group [ITRK], and Petrofac Ltd [PFC]. Clarkson, Intertek, and Petrofac shares have only been down in March once in the past 11 years. The weakest FTSE 350 shares in March have been Vectura Group [VEC], Lancashire Holdings Ltd [LRE], Kier Group [KIE], Renishaw [RSW], and HSBC Holdings [HSBA].

Dividends

March is the busiest month of the year for FTSE 100 companies paying dividends. And it’s also a busy month for company announcements: the busiest for FTSE 250 companies in the year with 71 companies announcing their prelims this month (along with 24 FTSE 100 companies).

Aside from stocks, March has often been a weak month for gold and a strong month for oil.

Holidays

It’s Good Friday at the end of the month. A famous anomaly in stock markets is that prices tend to be strong on the day preceding and the day following a holiday. This effect is strongest in the year around the Easter holiday.

The following chart plots the month returns of the Nikkei 225 Index in January for the period 1980-2017.

In the 40 years from 1950 to 1989, the Nikkei 225 Index only fell in January in 6 years. After that, as can be seen in the above chart, the record became quite a bit more patchy. For example, in the 10 years since 2008, the Index has fallen over 8% in January four times.

Further analysis of the Nikkei 225 Index in January over different time periods can be seen in the following table.

In the 68 years from 1950 to 2017 the Index had an average month return in January of 2.5%, and saw positive returns in 69% of years. But since year 2000 this has dramatically changed (as was also the case of the US and UK markets). Since 2000, the Index has had an average return in January of -1.6%, the worst average return of any month in this period.

The following charts plots the cumulative returns for the 12 respective months since 1980 (for more explanation of this chart see here).

The cumulative portfolio for January has been highlighted in the above chart.

The cumulative performance of January peaked in 2001, at which point it was the best performing month in the year. Since 2001, the cumulative performance has dramatically under-performed that of other months.

The following chart plots the month returns of the S&P 500 Index for January for the period 1980-2017.

The characteristic of the market in January seems to have changed around the year 2000.

In the 20 years from 1980 to 1999 the S&P 500 index only fell in 5 years. But in the 18 years since 2000 the index has fallen in 10 years.

Further analysis of the S&P 500 Index in January over different periods can be seen in the following table.

In the 68 years from 1950 to 2017 the Index had an average month return in January of 0.9%, and saw positive returns in 59% of years. But since year 2000 this has dramatically changed, with an average month return of -1.1% and positive returns seen in only 44% of years.

Since 2000, January has the weakest record of performance for the S$P 500 Index.

The following chart plots the cumulative returns from 1980 for 12 portfolios, where each portfolio invests each year exclusively in just one of the 12 respective months. (and is in cash for the other 12 months of the year).

The best performing month over this period has been April, investing in just the month of April each year would have grown an investment of $100 in 1980 to $179 in 2017.

The worst month has been September (the bottom line in the following chart): a $100 investing just in the month of September would be worth $76 by 2017.

The cumulative portfolio for January has been highlighted in the above chart.

It can see that by year 2000, January was the strongest of all the months in the year, but that record changed after 2000. By 2017 the $100 would have grown to 130.

January used to be one of the strongest months for shares in the whole year. From 1984 to 1999 the average FTSE All-Share return in the month was 3.3%, and as can be seen in the accompanying chart in those 16 years the market only fell twice in January. But after year 2000 things changed dramatically.

Since 2000 the average market return in January has been -1.6% with the market seeing positive returns in only six years, and in four years since 2000 the market has fallen more than 5% in the month. This makes January the worst of all months for shares since 2000.

January Effect

In the stock market this month is famous for the imaginatively-titled January Effect. This describes the tendency of small cap stocks to out-perform large caps in the month. This anomaly was first observed in the US, but it applies to the UK market as well. For example, since 1999 the FTSE Fledgling index out-performed the FTSE 100 Index in January every year until 2015. The small cap index under-performed large caps again in January 2016, suggesting that the anomaly was no more. But the historical trend re-asserted itself in 2017, with small caps out-performing large caps by 3.9 percentage points in January last year.

Outlook for 2018

Since 1800 the market has generally been relatively strong in the eighth year of the decade. It has been especially strong since 1958, with an average annual return of 11.0% and up every eight year of the decade until…yep, 2008. In that year the market fell 33% ­which has rather dented the performance of the decennial eighth years. Remove 2008 from the calculation, and the average annual return in eighth years since 1958 has been a stonking 19.3%.

The guidance from the centennial cycle is also encouraging; in 1718, 1818 and 1918 the respective annual returns for the UK market were +0.6%, +5.5%, and +11.0% ­ a steady progression of increasing returns suggesting a return of around 16% in 2018!

In the Chinese calendar it will be the year of the dog, which is excellent news. Since 1950, dog years (despite the name) have the best record of returns of the 12 zodiac signs. Since 1950, the average annual return for the S&P 500 Index has been 16.8% in dog years.

And, finally, the US presidential cycle has a significant effect on equity markets worldwide, including in the UK. 2018 will be the second year in the cycle and on average the UK market has seen returns of 2.0% in the second year of this cycle.

Does the equity market display any particular pattern in the days around Christmas and New Year?

Mean returns

The following chart plots the average daily returns of the FTSE 100 Index for nine days around Christmas and New Year for the periods 1984-2017 and also 2000-2017.

The nine days studied were-

Days 1-3: the three trading days leading up to Christmas.

Days 4-6: the three trading days between Christmas and New Year.

Days 7-9: the first three trading days of the year.

For example, since 1984 the average return of the index on the day before Christmas has been 0.24%

Observations

Market strength increases to the fourth day (the trading day immediately after Christmas). Since 1984 the fourth day has been the strongest day of the whole period, with an average daily return of 0.49% (albeit the volatility of returns on this day is high).

Generally the profile of returns for the shorter time range (2000-2017) is similar to that for the whole period from 1984. The one significant difference is that since 2000 the strongest day of the period has been the first trading day of the new year. The new year generally starts strongly on the first day, with performance trailing off the following two days.

The weakest day in the period is the third day of the New Year, followed by the last trading day of the year.

Let’s now see if the pattern of positive returns confirms the above findings.

Positive returns

The following chart plots the proportion of daily returns for the FTSE 100 Index that were positive on the nine days around Christmas and New for the period 1984-2017.

For example, for 84% of the years since 1984 the returns on the day after Christmas were positive.

The profile of behaviour demonstrated by the positive returns is similar to that for the mean returns above.

So, how did equities perform last year around Christmas compared to the average behaviour seen above?

Last year

The following chart replicates the first chart above with the average day returns for the period 2000-2017, and also plots the actual day returns for the nine days around Christmas in 2016.

As can be seen, the actual returns last year roughly followed the average pattern since 2000: the strongest days were the days after Christmas and New Year, with performance quickly trailing off after New Year.

The above is an extract from the newly published UK Stock Market Almanac 2018.

Since 1970 December and April have been the best two months of the year for shares. Since that year the FTSE All-Share Index has risen in December in 74% of all years and the average month return has been 2.1%. In addition, the volatility of December returns is significantly less than any other month.

As can be seen in the accompanying chart the market has only fallen in December in six years since 1984. But two of those negative-return Decembers were very recent: in 2014 and 2015. Which might have led one to wonder if the stellar record of December for shares was ending. However, last year, in 2016, the strength of the market in December reasserted itself when the FTSE All-Share Index rose 4.9% in the month.

However, the solid performance of the market in December is only part of a wider trend, namely that from the end of October shares tend to be strong through to the end of the year. This is a result of the Sell in May effect (aka Halloween effect), where equities are relatively strong over the six-month period November – April. So, the market does have a fair following wind at this time of the year, and then in December shares often become super-charged.

The average December

In an average December, shares have in fact tended to be weak in the first couple of weeks of the month, but then around the tenth trading day shares charge upwards. The last two weeks of December is the strongest two-week period of the whole year (and is often referred to as the Santa Rally), and the three days with the highest average daily returns in the year all occur in this two-week period.

Dividends

While December has been a good month for capital gains, it’s the worst month for income investors with only five FTSE 100 companies paying interim or final dividend payments in the month.

Sectors

The FTSE 350 sectors that have tended to be strong in December are: Electronic & Electrical Equipment, Construction & Materials, and Media; while the weak sectors are: Banks, General Retailers, and Fixed Line Telecommunications.

Diary

Dates to watch this month are: 5 Dec ­ FTSE index quarterly reviews announced, 7 Dec – US Nonfarm payroll report, 19 Dec – FOMC announcement on interest rates, 20 Dec – MPC interest rate announcement, 21 Dec – Triple Witching. And note that the London Stock Exchange will close early at 12h30 on the 22nd and will be closed all day on the 25th and 26th.

On 17 March 1968 the system that fixed the price of gold at USD35.00 collapsed and the price of gold was allowed to fluctuate. Let’s have a quick look at the chart to see how gold has performed since it floated in 1968.

Since 1968 when gold floated, its price has grown at a CAGR of 7.7%.

Let’s look now at its monthly seasonality.

The following chart plots the average price returns for gold by month since 1968. For example, since 1968 the average return of the gold price in January has been 1.2%.

And the following chart plots the proportion of months that have seen positive returns. For example, in 60% of years since 1968 gold has had positive returns in February.

It can be seen that since 1968 gold has on average been strong in February, September and December. The weak months for gold have been March and October.

This profile of behaviour would seem to have some persistency as the same pattern can be seen for the more recent period 2000-2017, for example the following chart plots the average month returns from 2000.

The main new features recently have been the strength of gold in the months January, August and November, and the weakness in December.

Gold and equities

The following chart shows the ratio of the FTSE All Share Index to gold (priced in sterling) since 1968. One can regard the chart as the UK equity market priced in gold.

The ratio peaked at 18.8 in July 99 and then fell to a low of 2.3 in September 2011. Since 1968 the ratio average is 6.1

The above is an extract from the newly published UK Stock Market Almanac 2018.

Since 1990 the FTSE All-Share Index has seen an average return of 0.7% in the month of November; with positive returns in 15 of the last 27 years. This ranks November in the middle of the 12 months for equity performance. However, in recent years the market has been noticeably weak in November ­in the last 11 years the Index has only seen positive returns in the month in three years.

Sell in May…

The significant feature of November is that it marks the start of the strong six-month period of the year (November to April ­ an aspect of the Sell in May effect). In other words, investors should be increasing exposure to the market this month (if they haven’t already done so in October).

Sectors

In the last ten years the FTSE 350 sectors that have performed strongly in November have been: Beverages, Electronic & Electrical Equipment, Fixed Line Telecommunications, Food Producers, Life Insurance, and Travel & Leisure. While the weak sectors have been: Aerospace & Defense, Banks, Oil & Gas Producers, and Real Estate Investment Trusts.

FOMC announcements

Since 1981 the US Federal Open Market Committee (FOMC) has had eight scheduled meetings per year, the timing of which is quite irregular. Each meeting is two days long, with a policy statement released at the end of the second day (1 November this month). Many academic papers have studied the effect of these FOMC announcements on financial markets. One such paper found large average excess returns on U.S. equities in the 24-hour period immediately before the announcements (an effect the paper called the “Pre-FOMC Announcement Drift”). According to this paper, “about 80% of annual realized excess stock returns since 1994 are accounted for by the pre-FOMC announcement drift”.

A quite amazing finding!

It might be added that a similar effect can be seen for the UK equity market as well. The average daily return for the UK market in the 24 hours before the FOMC statement is 0.33%, over ten times greater than the average daily return on all other days.

October has a bad reputation among investors. Partly justified, one might think: in 1987 the FTSE All-Share Index fell 27% in the one month of October, and then in 2008 the index fell 12% in the month. However, a glance at the accompanying chart tells a different story. In the 27 years since 1970, the UK stock market has only seen negative returns in October in six years – a record second only to December. And in recent years equities have remained strong in October, only falling in one year since 2010.

But, while average equity market returns in October may be better than thought, the month does have a deserved reputation for volatility. Only September can challenge it for share price fluctuations.

Sell in May/Halloween effects

The strength of equities in October may not be unconnected with the fact that the strong six-month period of the year starts at the end of October (part of the Sell in May effect) and investors may be anticipating this by increasing their weighting in equities during October. The last day of the month also tends to be strong, in fact it has the best record of any month’s last trading day – which, again, may be related to the Sell in May effect.

But while October, therefore, should be regarded as a good month for shares, any occasional weakness in the month can be severe.

The average October

In an average month for October the market tends to rise in the first two weeks, then to fall back, before a surge in prices in the last few days of the month (Sell in May effect ­ aka Halloween effect ­ again!)

Shares

In the last ten years, shares that have the strongest record in October are: Diageo [DGE], Tate & Lyle [TATE], and Whitbread[WTB]. Especially strong has been Diageo, which has seen positive returns in October in every year since 2006, with an average return in the month of 3.1%. By contrast, weak shares in October over the last ten years have been: Marshalls [MSLH], William Hill [WMH], and UDG Healthcare [UDG].

Large v mid caps

The month is one of only two months (the other is September) that FTSE 100 stocks tend to out-perform the mid-cap FTSE 250 stocks – since 1986 the FTSE 100 Index has on average out-performed the FTSE 250 Index by 0.7 percentage points in October.

Diary

Dates to watch out for this month are: 6 Oct – US Nonfarm payroll report, and 31 Oct the two-day FOMC meeting starts.